Issues Regarding Debt Collection for Small Businesses
by Ann Patteson of Strang, Patteson, Renning, Lewis & Lacy, s.c. 844.833.0825
Debt collection is one of the many significant issues for businesses. Poor policies and practices can lead to damaged relationships with customers, financial loss and inefficient use of administrative time.
The first aspect of debt collection is a review of your standard customer agreement. Does it set forth an interest rate for past due payments? If no interest rate is specified, then the statutory rate of 5 percent per year may be charged. Does your customer agreement provide for the collection of actual attorney’s fees? Without such a provision, it is nearly impossible to collect actual attorney’s fees from your customer.
Another aspect of debt collection is to establish and enforce routine times to bill for services and goods, as well as standard follow up procedures (letters and/or calls) when bills go unpaid. Once a customer’s account reaches a certain level, the terms of any future work or goods should be reconsidered to prevent the situation from worsening. Permitting a customer to owe your business a large amount of money may result in an unpleasant shift of negotiating power towards the customer with the past due amount, and it is far better never to let the situation develop to that point.
If, despite your best efforts, you still need to collect a debt, you may wish to consider retaining an attorney. Most likely the matter will be venued in small claims court, where in Wisconsin, the maximum claim is $10,000. Moreover, unlike circuit court, certain employees and owners of businesses may represent themselves. Unfortunately, some debtors will only respond to a collection letter from a law firm because then they know the business is actually serious about wanting to get paid.
After having initiated legal action, it is still possible to work out a payment plan with a customer. Such a plan can be structured so that if a payment is missed, the customer consents to a judgment less credit for any payments. Alternatively, the business can take a judgment, but agree not to enforce it if the payments are made.
When considering an investment in legal fees to collect a debt, the ability to collect the judgment needs to be evaluated, as well as the complexity of the case. Reviewing the online clerk of courts’ records may indicate other collection activity or tax warrants having been filed against the customer, as well as the disposition of those other collection activities.
For advice and counsel concerning debt collection, contact Ann Patteson at (844) 833-0825.
Ann Patteson is a Shareholder with Strang, Patteson, Renning, Lewis & Lacy, s.c. This article is intended to provide information only, not legal advice. For advice regarding a particular situation, please contact the attorneys at Strang, Patteson, Renning, Lewis & Lacy, s.c.